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What makes Silicon Valley special?
It’s increasingly clear that the wealth and power of any given nation state will be proportional to its ability to create and utilize new technology.
Technology is creating an economy in which superstar employees work for superstar firms that gather them into superstar cities, leading to a stark geographic concentration of wealth unlike any seen in the past century.
However, technology is not the only primary driver of geographic inequality. Many of these trends are better explained by changes in policy, which since the early 1980s have in many distinct ways given large companies free rein to merge, dominate markets, pursue government subsidies and tax breaks, and in general grow larger at the expense of small, medium and local businesses. In particular, the 1982 merger guidelines are very specific in that the only thing that matters (when considering antitrust) is economic efficiency, which is translated into consumer welfare and low prices.
The rise of geographic inequality and a deepening urban-rural divide threaten growth in the US.
As firms cluster around talent, and talent is in turn drawn to those firms, the result is self-reinforcing trend forward ever-richer, ever-costlier metro areas that are economically dominant over the rest of the country.
Silicon Valley isn’t a place that creates entrepreneurs, wealth, and technology. It’s a place that attracts entrepreneurs who create wealth and technology. SV is a magnet — just like Hollywood attracts potential actors, it doesn’t create them. An intelligent immigration policy is the largest wealth creator in the world.
“Industry towns” emerge due to the critical mass of having employees, entrepreneurs, suppliers, business partners, potential customers, and investors in the same geographic/physical location.
, including energy, finance, movies and entertainment and other areas.
For example, Hollywood and Bollywood for film, NY and London for finance, SF Bay Area, Bangalore and Beijing for tech.
If you were going into the movie business, you would be encouraged to move to Hollywood, Lagos, or Mumbai. Hollywood is the epicenter for people who want to produce/direct/star in films.
If you wanted to go into finance, New York, London, and Hong Kong would be amongst the primary places to move.
Oddly, it is now controversial to say industry towns also hold true for tech – if you want to start a company that will be worth $10 billion or more, the best places to start it are Silicon Valley (I will use “Silicon Valley” and “San Francisco Bay Area” interchangeably in this post) (for the US), Beijing (China), and Bengaluru (India). There are also regional centers of excellence (Jakarta for Indonesia, Singapore, Sao Paolo for Brazil, etc.) and then secondary centers in the main markets (London, Stockholm, Paris, Berlin in Europe amongst others. Shenzen and Shanghai in China. New York, and to a lesser extent Los Angeles, Seattle, Boston, San Diego, Atlanta, DC and others in the US).
Some industry towns are driven by their geography – for example manufacturing sites on the Mexican side of the US-Mexico border, Houston for oil & gas, or wineries in Napa (where the right conditions exist for grapes to grow). Other industry towns emerge due to early founding effects – for examplehappened to live there when they set up shop (Ford Motor Company and Oldsmobile). Notably, the automotive industry was considered one form of “high tech” in its day. Other companies and suppliers moved to be close to Ford and Oldsmobile and an industry town was born.
This does not mean it is impossible to succeed elsewhere. There will, of course, be successes everywhere. Rather, careers are hard enough as it is, so loading the deck in your favor matters. On average, being in an industry town is more likely to lead to success than being elsewhere.
If you wanted to go into the movie business and someone told you “you can make films from anywhere – you should move to Austin or San Francisco”, you would think they were crazy.
It does not mean that you could not have a movie career in San Francisco – but it would be more challenging. Movies are written by authors who could live anywhere, are filmed onsite around the world, and could be digitally edited from anywhere. Actors could fly to any site in the world to act. For example, Robin Williams lived in the Bay Area for big periods of his life. But for the Western markets most of the critical mass of the industry still happens in Hollywood.
Similarly, while you can build a technology company from anywhere, it does not mean you should. There is a real advantage to being in an industry town.
Technology startups have their own industry towns in places like Silicon Valley, Beijing, and Bengaluru. Secondary towns include London, New York, Shenzen, and Shanghai. On average, going elsewhere will make it harder to succeed in a career in technology.
I. ENVIRONMENT – Living and breathing a craft
Most things that make it nice to live in, say, SF, aren’t features of the city but of the ambient environment around it that make it desirable to live there.
Some people are obsessed with their craft. Quentin Tarantino worked as a clerk in a video rental shop and spent his free time watching movies and learning from old masters. The best biologists go to dinner with other biologists and spend all their time talking about biology. And, if single, they may also talk about their dating lives.
Industry towns attract people who view their work and their craft and their hobbies as one thing. They attract a lot of people self-obsessed with whatever it is they love to work on. Hard work, ambition, and a singular focus are more likely to meet with success than taking it easy, a laissez fair attitude and wanting to do a little bit of everything.
Silicon Valley has the highest concentration of early stage startups and hyper compressed environment for anyone who wants to accelerate both professionally in their tech career and socially as an investor.
While many of the most interesting founders in Silicon Valley are polymathic, they spend the brunt of their time early in their startup journey on their companies and discussing technology trends.
While it can be maddening that everyone here works in tech, that concentration creates opportunities that are impossible to otherwise engineer.
So the secret sauce of Silicon Valley is the environment coming from the culture and the network/ecosystem.
The culture is kind of an operating system, and the operating system stays intact even as you put different programs through it.
Few of us are immune to the values of the people around us. The culture is so strong that people are absorbed into it and become part of it and do it willingly, and if someone is not willing, then the guys around them are so strong that they will pull them into the culture.
To me, Silicon Valley is not a place, it’s more a state of mind and a culture of how things are done.
Great cities attract ambitious people. You can sense it when you walk around one. In a hundred subtle ways, the city sends you a message: you could do more; you should try harder.
The surprising thing is how different these messages can be.
Because ambitions are to some extent incompatible and admiration is a zero-sum game, each city tends to focus on one type of ambition.
When you ask what message a city sends, you sometimes get surprising answers. As much as they respect brains in Silicon Valley, the message the Valley sends is: you should be more powerful.
Entrepreneurs in the valley are often the children of successful professionals, such as computer scientists, dentists, engineers, and academics. Growing up they were constantly told that they—yes, they in particular—could change the world. Their undergraduate years were spent learning the art of coding from the world’s leading researchers but also basking in the philosophical debates of a liberal arts education. When they arrived in Silicon Valley, their commutes to and from work took them through the gently curving, tree-lined streets of suburban California.
It is an environment of abundance that lends itself to lofty thinking, to envisioning elegant technical solutions to abstract problems. Throw in the Valley’s rich history of computer science breakthroughs, and you’ve set the stage for the geeky-hippie hybrid ideology that has long defined Silicon Valley. Central to that ideology is a wide-eyed techno-optimism, a belief that every person and company can truly change the world through innovative thinking. Copying ideas or product features is frowned upon as a betrayal of the zeitgeist and an act that is beneath the moral code of a true entrepreneur. It’s all about “pure” innovation, creating a totally original product that generates what Steve Jobs called a “dent in the universe”.
Startups that grow up in this kind of environment tend to be mission-driven. They start with a novel idea or idealistic goal, and they build a company around that. Company mission statements are clean and lofty, detached from earthly concerns or financial motivations.
In general, Silicon Valley focuses a lot of effort on creating value (IDE — Innovation Driven Enterprise) but very little energy on capturing it. As a result, many of its well-known companies (e.g. Twitter, Snapchat, Craigslist, Uber, Amazon) earn very low profits despite providing massive indisputable benefit to society.
Even some of the really large, really profitable tech companies (e.g. Google, Facebook) probably only capture a tiny portion of the total value they create. Instead, almost all of that value goes to consumers, an interesting reason tech companies might be so beloved.
This is not meant to preach a gospel of cultural determinism. Birthplace and heritage are not the sole determinants of behavior. Personal eccentricities and government regulation are hugely important in shaping human and company behavior.
Why are industry towns so powerful?
Some will tell you to skip SF altogether – I think that’s a big mistake for entrepreneurs that are thinking big.
The economic returns to living in a city that’s living in the future are increasing.
Silicon Valley is more meritocratic than any other place in America. The definition of meritocratic – Can you go from literally nowhere to success overnight? In Silicon Valley – absolutely yes.
I believe that technology ultimately progresses because of people and the deepening of the process knowledge they possess, and that the creation of new tools and IP are the milestones of better training. We should distinguish technology in three forms: tools, direct instructions (like blueprints and IP), and process knowledge. The third is most important: “Process knowledge is hard to write down as an instruction: you can give someone a well-equipped kitchen and an extraordinarily detailed recipe, but absent cooking experience, it’s hard to make a great dish.”
Market capitalization, revenue, key partnerships, and outsized talent tend to aggregate in industry towns. Industry towns self-perpetuate as you have a critical mass of talent, suppliers, customers, investors, and know-how in a single geographic area. A cluster, once it exists is self perpetuating and attracts more of the same. Industry towns like SV plug you into a critical mass of access & knowledge, customers, differentiated talent, and capital.
One of the folk beliefs about what makes for a good startup hub is also the presence of influential anchor companies. The theory is that large companies serve as spawning grounds for founders, recruiting pools for startups, sources of exec talent during the scaling period, and acquirers, or employers of last resort if the new enterprise fails.
1. Unique insights and know-how
Access and inside information matter a lot—Extensive market, technical, and competitive information accumulates within a cluster, and members have preferred access to it. In addition, personal relationships and community ties foster trust and facilitate the flow of information. These conditions make information more transferable.
What are new forms of distribution for product? What new paid and unpaid channels exist for your business? What are customer trends? What are new coding or design trends? Which VCs are funding what? Which VCs are funding the NoCode/Devsumer or RPA market? What are the current terms for an M&A offer for a 5-person machine learning team? Industry towns tend to be where early adopters spread insights that an aggressive startup can take advantage of. While some online groups can create similar activity, running into people and serendipity in information spread, board meetings, angel/founder or founder/founder conversations cannot be over appreciated.
2. Early customers
For some industries your customers are mainly elsewhere. For example, if you are selling optimization software for oil well extraction, you do not have many customers in Silicon Valley.
However, if you are selling generally useful enterprise software or SaaS, many early adopters for your product exist in the Bay Area. Technology companies are more likely to early adopt new products than older companies for many categories of enterprise software. Similarly, many early consumer product influencers for technology products are based in the Bay Area. Early customers (influencers for consumer, buyers for enterprise) all based in tech clusters. There are obvious counter-examples in “middle America” products – like Pinterest & Wish. Often, the best place to find early adopters of technology products are in a technology cluster.
Besides, The Bay Area has two advantages: 1/ Fundraising 2/ Lots of potential executives and founders with experience in hyper-growth mode. Successful people have no good reason to move, and that’s who you need in large quantities.
3. Talent base
Great engineers, sales people, product people, etc. exist all over the world. However, the highest concentration of outstanding ones are concentrated in industry towns (just as the highest concentration of great actors in the USA live in Los Angeles). The highest concentration of ambitious people in tech reside in Bay Area (for US). Just as the highest concentration for finance is in NY. Similarly, the people who know how to scale technology companies are concentrated in the tech epicenters. Engineers, sales, PMs, others who have worked at breakout companies all based in Bay Area.
Many companies come to the SF Bay Area to fundraise post product-market fit to access this talent base and know-how. Companies in vibrant clusters like SV can tap into an existing pool of specialized and experienced employees, thereby lowering their search and transaction costs in recruiting. Because a cluster signals opportunity and reduces the risk of relocation for employees, it can also be easier to attract talented people from other locations, a decisive advantage in some industries.
Service providers. Smart service providers for legal, real estate such as legal know-how, banking, and real estate providers with flexible terms or unique outlooks cluster in industry towns. What terms is a specific investor willing to capitulate on? Your lawyer should know. In industry towns they often do.
4. Smart investors
Smart angels & venture capital is here. The best startups in NY, LA, DC, Boston, eventually come to Silicon Valley to fundraise. This is due to a concentration of knowledge, insight, and ambition, as well as dense networks for customers and talent bridged by the investor. Similarly, the best investors in India cluster in Bengaluru and in China in Beijing.
The problem with companies in second tier markets is, when you need to raise a big round, hire leadership, etc., etc. It’s hard or impossible. (Obviously this isn’t a big deal if you are just trying to bootstrap- this is for future VC-funded cos only). If you’re looking for someone who’s world-class on a high-demand area, like say data science, or growth or engineering management, there’s hundreds or thousands of folks who are qualified in the Bay Area and a much weaker bench of candidates in the secondary markets. Great startup executive talent, particular kinds of engineering talent—that are much harder to find outside the Bay Area. Typically one of the hardest things to attract outside of Silicon Valley are executives familiar with high growth startups and how to scale a team as the company is growing >100% year over year.
5. The ecosystem
The US is ahead because it is simultaneously strong in research and implementation, has the world’s best VC-entrepreneur-talent-customer ecosystem and has a huge head start with the likes of Google, Facebook and Amazon.
What explains success in Silicon Valley is often the critical density of people which propel a company forward. Being able to hold that critical density of talent for a long enough time is what matters most when it comes to success. In a simple sense – these tech-minded types of people just geographically organized themselves around the area. That being said – “You can absolutely build a successful company almost anywhere”. But in Silicon Valley, there’s an endless supply of these companies.
There is absolutely a certain density and concentration of interest and talent and resources to build a company here. You go into a trendy restaurant and three-quarters of the conversations in the restaurant are about technology and start-ups. It has a large number and high concentration and density of companies, institutions and people involved in the changing and revolutionizing the world, creating new businesses out of nothing, and forming a ‘network effect’ (with close ties to the community) that applies to social networks, and a critical mass in the whole ecosystem of new entrepreneurs, serial entrepreneurs, angel investors, VC investors, late stage investors, and corporate decision makers who all care about the startup ecosystem, which made it a “bubble” or a special momentum.
At a systems level, SV has created a way to attract the best people on Earth to build new tech, pay huge amounts, so they can work on the best opportunities. Folks shift themselves around when ideas don’t pan out. This is dynamic, and awesome.
Already in America there has been four or five decades of interdisciplinary collaboration: semiconductor people helping PC people helping software people helping internet people helping social media people helping mobile people. And now all the resources are helping AI people. This whole linkage and heritage continues in Silicon Valley.
It’s exactly because of this ecosystem and the network effects holding it together that the Bay Area will remain the dominant tech center, regardless of improvements in remote work.
Given that Internet markets are 10X bigger than ever before, there will be more $1 billion companies all over the world. It has never been easier to build a company with $10M or $100M in revenue.. It has indeed never been easier to start a billion dollar company from anywhere in the world.
However, the biggest $10 billion+ companies will continue to largely be founded in clusters. In parallel, technology market cap continues to grow most for startups in technology clusters or industry towns. While there are more $1 billion companies all over the world, there are more $10B+ companies in technology clusters. Market cap has historically aggregated to a small number of places. There is no clear “why now” to suggest the effects for industry towns have shifted dramatically enough to displace them.
The rise of distributed teams means that more companies are hiring outside of their HQ city more quickly. If you distribute your team, you need to invest earlier in process. You will need to do goal setting, strong internal communications, and lots of in person meet ups, earlier than most small companies would. Distributed teams have a cost. In some cases the cost may be worth it. In many it is worth waiting until your startup has scale. As tooling becomes stronger we are likely to see even more distribution of teams over time. Over the next 5 years, HQs of the biggest new startups will largely be based in industry towns. 10 years out is always harder to predict.
The ecosystem is evolving. Another option is for startups to have a presence in the Bay Area and a majority of employees elsewhere. There’ve been a lot of approaches but there’s one I particularly like – which I hereby christen “The Mullet Model” of organizing your startup team.
The Mullet is when you put the leadership team + customer-facing roles in San Francisco, and then engineering/design/everything else as a distributed/remote team. If you have an advantage in hiring in a local market, you can put your HQ in an industry town and your engineering office in the local market. If building for India/China markets, best to be in Bangalore/Beijing. If building for local market, be in tech center for market eg: Lagos & Nigeria. If building for US or world, go to Silicon Valley. If you have advantage in hiring talent elsewhere, at least put HQ in Silicon Valley. Putting your leadership/exec team, key functional hires, and customer-facing roles in SF gives you the benefit of being close to customers, capital, and the incredible experts that exist here. It’s hard to scale when the leadership is elsewhere.
For example, many Israeli startups will eventually move their HQ to Silicon Valley but keep an engineering team in Herzliya. Companies from Israel, Europe, and other countries have been doing this for years, but in reverse. They’d start in their home countries, build the core team, then move their leadership + sales/marketing to the US. This has worked many times! On top of that, all the new tools and workflows – built on Slack, Zoom, etc. – are making this more doable. Tons of companies working on making this are even better.
We’ve noticed more and more Y Combinator companies coming here for the program, raising money and building a network, and then going somewhere else. Which makes sense—the fundraising environment and network of the Bay Area remain unparalleled. And to state the obviously biased but still true belief: I still think companies should come to the Bay Area for YC!
In some cases, the primary market for talent is the industry town – for example Jakarta seems to attract many of the best or most experienced engineers in Indonesia – so it is not as easy to split the HQ from the rest of the company.
….Ironically, the Internet that many of the firms power isn’t helping.
The Internet was supposed to lead to a golden age of distributed workers. In some ways it did: The proportion of workers who do their jobs remotely is now at least 20% and growing.
While it was supposed to erase distance, it can’t yet replace high-quality face-to-face communication required for rapid-fire innovation.
Superstar firms continue to insist that their top-performing employees cluster in global headquarters or at least regional offices, costs and congestions be dammed.
Even the most modern communication technologies are limited: They can’t carry as much information as a real-life, face-to-face collaboration. Slack, email and instant messaging are famous for their inability to convey tone, and the resulting crossed wires.
The more a firm is dependent on innovation—that is. Leveraging technology to be the absolute the best at what it does—the more intense the collaboration of its superstar employees. Famously, Google’s only two “Level 11” engineers (on a scale of 1 to 10) code by sitting next to one another, staring at the same screen and working on a single keyboard.
Technologists who employ both remote workers and people collected into an office have debated and analyzed the phenomenon at great length. Their own experience boils down to this bon mot from venture capitalist Marc Andreessen: “There’s a “huge premium to being 10% better at executing,” meaning that while it can be a pain to bring workers to a central office, it’s worth it even if it leads to an incremental gain in productivity.
While remote work can be sustainable, anything that slows down a startup in the critical first year can mean losing to a faster competitor. Whether or not this is the case, it’s become such an accepted way of thinking in tech that companies—even big ones that only “think like a startup”—obey it as if it were a law.
All the factors above lead to these consequences:
a. Unreasonable people
Silicon Valley founders and VCs are typically forward-thinking entrepreneurs. They are bigger dreamers with mission andthat focus on solving problems, (read more ), and are willing to invest in them for years –or even decades, very often at the expense of having a solid, grounded, viable monetization plan. They have much more volatile careers than those in East Coast. The level of hunger to make an impact and change something in this world is uncontested. They use effectual reasoning. Their mindset is the mindset needed to start and grow a business. It is vital in the concept-planning to launch-establish phase. They seek to own the future.
Reasonable people do reasonable things and only unreasonable people can do unreasonable things. The reasonable person adapts themselves to the world, the unreasonable person tries to adapt the world to themselves. Hence, all human progress depends on the unreasonable person. Human progress depends on the socially maladjusted. Most tech people are unreasonable.
To do unreasonable things requires unreasonable commitments and sacrifices. Building a startup takes more than most normal business background people, it takes people with unreasonable visions to build unreasonably successful tech companies. There are exceptions, but between the two kinds of CEOs: a CEO with business background and a CEO with an engineering background, the one who is more likely to succeed at leading a tech company would be someone who is naive but with a great vision and understanding of what technical innovations could enable this other future and can look at the problem by imagining the possible instead of putting together a series of pragmatic steps, which business people do.
b. First-starter advantage
The secret to Silicon Valley’s success is not that it was the best but simply that it was the first. It’s called “First-starter advantage”, and it explains a lot, not only about the Valley but all innovations.
The point is, the “best” technology or idea doesn’t always prevail. Sometimes chance and the law of unintended consequences win out.
New products may not be perfect or beautiful, but they challenge them in certain ways, and when they respond to these challenges in a bold and creative way, the foundation for a golden age is laid.
But for that to happen, they have to get there first. This explains the Silicon Valley philosophy: better to get an imperfect product to market today than a perfect one tomorrow. As Steve Jobs once observed, when the lightbulb was invented, no one complained it was too dim.
Take a look at any great business and it becomes clear that.
First-starters such as Silicon Valley become magnets, and once magnetized, an irresistible momentum takes hold. Again, creativity is contagious. Several studies have found that we are more creative when surrounded by creative coworkers, even if we don’t interact directly with these colleagues. We also get a creativity boost from merely watching “schema violations”–someone eating pancakes for dinner, for instance. Something about being in the presence of creativity inspires us to think more creatively ourselves.
c. The best mechanisms for avoiding the consequences of risk
One of the biggest myths about Silicon Valley is that people here take risks. It is a myth that is simultaneously true and untrue.
The average founder does well, but the median founder flounders. Which is partially (among other reasons) why so many people take executive jobs or want to be VCs. Executive jobs will be there. Your startup might not. VCs have a portfolio, and founders don’t.
Indeed, there are lots of VCs who could make great founders, who would actually prefer to build a business than do a financial services job, but they just prefer the economic calculus of venture capital. Others, to be sure, are unwilling or incapable of building a great business.
The least knowledgeable people in the space right now are the early employees at a startup. Very often, they’re taking on the same risk that a founder does, but without similar compensation, without the control, and without the visibility.
I think, now, that lot of people who moved to technology hubs and joined startups, they’re betting their livelihoods on startups, even if they’re not founders themselves. These are people taking significant pay-cuts, putting their family and time at risk, so they have to become much savvier about evaluating what a good equity offer is.
Luckily, Silicon Valley embraces risk using an “affordable loss principle” in discovery of “what works”. It celebrates risk, yet at the same time it has some of the best mechanisms for avoiding the consequences of risk in the world.
share the unique view that entrepreneurial failure is an education rather than a badge of dishonor. They don’t punish risk-taking the way many other nations do.”, author of two best-selling books on innovation, explains the innovative success of the United States and Israel: “Both countries
What made Silicon Valley really attractive has been it is one giant incubator as a society, with a lot of pay-it-forward culture and a low cost of trying.
SV essentially places zero penalty on failure. You have almost unlimited upside if something works and very limited downside.
They’re working with a huge net. It’s easier to take risk when you are insulated from it.
It’s a culture in which people are willing to bypass convention in any area, not be overly biased by why things can’t be done, but rather take the approach, how one might take a shot at it? It is one where people are not afraid of failure but just look at the consequences of success, not the probability of failure. It is more experimental, less planned, more iterative, and evolutionary even as to the goals, let alone the methods.
It is like a Wild West risk-taking culture, at least at the personal level of things. Entrepreneurs accept risk as given and focus on controlling the outcomes at any given level of risk; they also frame their problems spaces with personal values and assume greater personal responsibility for the outcomes. Founders think in action…”Fire-ready-aim”. They pursue opportunities without regard to resources currently controlled. Working at a startup is like riding a roller coaster and rolling the dice. Building a startup is so hard with so many obstacles and ups and downs in the way that practical people become too pragmatic and turn big visions into decent ideas instead of sticking with their original vision. Seefor more information.
No progress is possible without trial, error and failure. Not in business, not in science, not in nature. Without failure, there is no learning, no progress, and no success.
Billionaire Mark Cuban explains it this way. “Failure is part of the success equation.” You don’t succeed unless you take risks. And when you take risks you sometimes fail. When that happens you pick yourself up and start over again. Except that doesn’t happen when failure means you get a visit from your friendly local commissar.
Failure is acknowledged as a natural part of the process of innovation. Being able to view failure as an asset is the hallmark of an entrepreneurial environment. This is why I’m amused when I hear people sneering at Donald Trump’s bankruptcies, as if failing when taking big risks is a cause for shame. Creativity, like entrepreneurship, thrives in an environment that welcomes risk, not in one where risk-taking is punished. By its very nature, creation is risky. The world of technology thrives best when individuals are left alone to be different, creative, and disobedient. Innovation requires experiments (most of which fail). It works best when the innovator isn’t required to ask for permission first.
There’s no investment where money works as hard as it does in a tech startup. Driven founders, leveraged with code, capital, media, and intellect, sweating every dollar spent. An enlightened society would educate founders and investors, not restrict them.
Nothing stands still in Silicon Valley; the place has a kinetic energy. Look at the top ten firms in Silicon Valley. Every five or ten years, the list completely changes, with perhaps one or two exceptions. The entire venture capital industry essentially invests in failures, since the majority of the companies they fund eventually go under.
These entrepreneurs deserve their money because of the risks they take. But you don’t see people jumping off the tops of buildings here. They tend to land on their feet. They tend to land in places like this, drinking cappuccinos, because the risk is a peculiar kind of risk. Most of the people in high tech will admit if they lost their job, they would find another one. They might even find a better one.
Just by way of example, I want to say, I’ve seen very little radical innovation come out of any large company except for founder led companies, be they startups or large companies. Walmart didn’t innovate retail, Amazon did. Lockheed and Boeing didn’t innovate space, SpaceX did. GM and VW didn’t innovate electric cars, Tesla did. NBC didn’t do media, YouTube did. IBM, Dell, and HP didn’t do Hadoop or cloud computing, startups did and Amazon did.
This culture can be replicated in any part of the world, but is discouraged in most places, partly because failure is discouraged, partly because planning predictability and success along predefined pathways is the only way things get funded instead of saying something is just worth attempting. As the stories of Silicon Valley become more prevalent, this style and culture is becoming more pervasive and will grow in other areas, especially as old generations retire and new generations come up with new models. Having said that, there are ecosystems around places like Bangalore and Israel that are starting to start this transformation of culture. More established places like Europe see less of this, unfortunately, even though they have a lot of talent to make this approach possible.
d. The ecosystem for turning ideas into products and sustainable companies and scale-ups
The myth that it is a hothouse of good ideas. It is not.
Your ideas are more likely to be turned into products and sustainable companies here than elsewhere in the world.
Establishing yourself in Silicon Valley is a really good gateway to starting your own company. I think it is really important is to put yourself in positions where you’re around people who will help you get to where you want to be.
What makes Silicon Valley special is not the idea itself but what happens once the idea washes up here. The region Siliconizes ideas just as India Indianizes them. What comes out of the blender is recognizable but fundamentally different.
The thing that is most important of all is there is a relentless belief in the future here. There are people who will take your wild ideas seriously, instead of mocking you. And that’s because they have learned that it’s very expensive to pass and say every idea is stupid.
In most of the world, and in most other work contexts, people will mock you behind your back, to your face, whatever it is. You want to find the small number of people in your life that will support your ambitions, not belittle your ambitions. And this is hard to find.
In Silicon Valley, ideas aren’t invented but are processed in faster and smarter ways than they are elsewhere. If you have an idea, people will tell you where that idea fits in with the ecology of ideas that is operative. There are mechanisms in place, institutions set up, to bring together bright people. If Silicon Valley were a brain, it wouldn’t be the frontal lobe or even a brain cell; it would be a synapse, a connector.
Silicon Valley is not about technology. Sure, the products are technological, but those are the ends, not the means. People say they come here because it’s a technology hub, but that is merely a way to legitimize the move. The real reason people come here is that deal-making happens here in different ways and it’s possible to realize deals in different ways.
SV will show you that making an impact on a big scale is truly possible.
The real secret of Silicon Valley is not startups; it’s “scale-ups”. The area’s resources enable founders to build companies up to a global scale very quickly.
That title calls to mind Germany’sduring World War II. However, the intellectual parallels to blitzkrieg are too close: The innovation of moving super-fast to accomplish something decisive within a war. Here, it’s decisive within a market.
Part of the innovation that has been developed over decades in Silicon Valley is a bunch of resources. Everything from capital to talent to knowledge to help them get to global market very fast. That’s part of the reason why … there’s 4-4.5 million people in Silicon Valley and yet the majority of the $100-billion-plus tech companies within the English world are made here.
It’s all about “getting to global” quickly.
Exceptions that prove the rule:
Seattle has spawned two of the most successful companies in tech. Microsoft was originally headquartered in Albuquerque and then moved to Bellevue/Seattle in 1979, and Amazon was started in Seattle in 1994, in part due to its tax rules. Notably, the founders of Microsoft Bill Gates and Paul Allen were born and raised in the Seattle area and then moved back for their startup – just as Ford and Olds created the auto cluster in their hometown of Detroit. While it is likely Seattle will create another mega company some day in the future, its startup scene today is smaller than Silicon Valley, New York, Los Angeles, and other US cities.
Similarly, Warren Buffet is pointed to as an example of how a great finance person does not need to live in NY – since he lives in Omaha. While correct, there are significantly more successful finance people in NY (with spillover now into Connecticut) than there are in Omaha.
An entrepreneur can build something special almost anywhere. To be clear, it will be easier to build a world-class tech startup in an established hub. Recruiting, especially senior executives, is much harder in an unusual location, but dozens of examples show that it is possible. Over the last decade, there have been over a hundred billion-dollar exits outside of the Bay Area. Each one of those companies can make its founders rich, return a fund for a VC, and lay the groundwork for new tech ecosystems. Put another way, nearly every month for the last ten years, a tech company has been acquired or gone public for over a billion-dollars — outside the Bay Area.
I am not arguing that it is impossible to be successful outside of industry towns, but rather there are network and knowledge effects that both pull incredible talent to clusters, and help them succeed faster than they probably would elsewhere. There are always exceptions, but the data on private unicorn market cap above demonstrates the high concentration of the best startups in industry towns.
Some people in tech have a visceral reaction to the suggestion that tech has industry clusters just like any other industry. This is largely driven by their own personal journey “I left the Bay Area for [cityname] and I am doing great in life, therefore this overall thesis is wrong”. Or, “I live in [x city] and it is great for my startup.” If that is the case, more power to you and congratulations on your success! While great people can be successful anywhere, market cap,, and other data all suggest that industry towns (and their outsized success) are here to stay. As mentioned above, that does not preclude success elsewhere. Technology entrepreneurship is not zero sum.
There are plenty of good reasons to choose to build a company in the Bay Area; Entrepreneurs should decide where to establish their startup based on what’s best for their company, and for them personally. The decision of where to build a company will dictate the course of the entrepreneur’s life, and shouldn’t be dictated by the business model of their investor.
I doubt there will ever be another city that will eclipse SF for concentration of software startups.
The “next” Silicon Valley is a myth. Silicon Valley goes through boom-and-bust cycles, but always reinvests in itself. There’s no reason why that won’t continue. My instinct is that increasing popularity of startup -> more founders distributed in more places -> many of whom will want to leave local ecosystems to go to SF for the established network and perception that the best/most experienced are here. Either geographical network effects hold and SV becomes more important, or they no longer apply and everything turns decentralized. Either way, there’s no “next” SV.
Its combination of engineering expertise, strong universities, thriving business networks, deep pools of capital, and a risk-taking culture have made the Valley impossible to clone, despite many attempts to do so.
To be clear, share none of the spirit or the culture. In my humble opinion, it’s hard to unbundle the talent, capital, knowledge, etc. Again, culture plays an important role. While that may seem ethereal and high minded, the truth is that it matters.. There is no credible rival for its position as the world’s pre-eminent innovation hub. SV is in a league of its own. It’s no wonder that so many places seek to create the next Silicon Valley. Perhaps never before in the history of the world has so much wealth been created in so short a time in one place. However, they invest in the trappings, but
The Valley is good at absorbing new arrivals, and just as adept at spitting them out. You can talk to people who have been here only a few weeks and they talk to you as if they’ve always been a part of Silicon Valley. It’s an absolutely amazing place for taking people in and for releasing people, letting them go. A magnet, in other words, but also a sieve.
San Francisco governance – will the tech cluster move elsewhere in the Bay Area?
The city of San Francisco has two potential paths ahead of it. It can create one of the best run, best funded, most progressive and diverse cities on the planet. With an ever growing tax basis, a burgeoning population, and an amazing geographic location, San Francisco should be one of the great cities of the world. Alternatively, a lack of affordable housing, growing homelessness, poor transit infrastructure, and rising open drug use and petty crime can continue to be problems.
The last few years have seen a generational transfer of wealth from pension funds and endowments to San Francisco landlords. Endowments and pension funds back venture capitalists, who fund startups, who hire employees, who give much of their salaries to San Francisco landlords. People who own buildings in San Francisco have made enormous amounts of money while homelessness increases. San Francisco (and indeed, much of California) have building unfriendly regulations that are preventing housing supply from being built where it is direly needed.
It was just 10 years ago in 2008/2009 that few major technology company outside of Saleforce were based in San Francisco. New startups were just moving up to the city or getting founded there. Over the last decade, those startups have grown up into Uber, Airbnb, Lyft, Twitter, Pinterest (which moved from Palo Alto), Stripe (which moved from Palo Alto), Square and others.
From ~1994-2010, most leading Internet companies in the Bay Area were in San Jose, Mountain View, and Palo Alto. From ~2010-today the best new companies have been based in San Francisco. Ten years from now, will we be talking about all the technology startups still in San Francisco? Or will the epicenter have shifted yet again to Oakland, South San Francisco/Burlingame, or another part of the Bay Area instead?
10 years ago, most startups and companies in tech were in the South Bay. SF may not sustain as a tech cluster, while the Bay Area probably will.
There are counter forces to Bay Area tech dominance – for example San Francisco governance is terrible.
If SF governance (lack of affordable housing, homeless & drug issues) doesn’t change, people will spill over into other parts of the Bay Area. Maybe Oakland, South SF, (or elsewhere) displaces SF eventually. Either way, cluster and industry town is likely to stay in Silicon Valley.
If San Francisco is not able to drop housing costs and the general affordability of living in the city, residents and companies will eventually go elsewhere. While others parts of the area are increasingly expensive, the city in the Bay Area that seizes the initiative on affordable housing, transit, commercial space and infrastructure could become the new tech epicenter of the world.
My hope is San Francisco is able to correct its problems, and that technology companies and employee-residents play their civic role in supporting the city as it transitions.
There’re a lot of myths about Silicon Valley.
A lot of people thought SV must be a hustling and bustling place with hundreds of events to network. That’s what you see from the outside and that’s what I keep seeing other startup ecosystems around the world trying to copy. What people get wrong is that the free-flowing beer kegs at fancy co-working spaces aren’t the secret to Silicon Valley’s success.
Most entrepreneurs are far less sociable than you might think they would be. Who are the tech billionaires before they are tech billionaires? They don’t spend their time hopping from inspirational startup event to startup event. They sit in their small, expensive rooms in shared houses and code, or are out meeting business partners. They focus on what matters: building their business. SV’s success also has nothing to do with intelligence or even with technology.